When it comes to designing a bridge or a new building, most public agencies throw out the lowest-bidder-wins standard and award the engineering or architecture contract based on an evaluation system that scores the technical merits of each bid, the bidder’s qualifications, as well as the price.

Get the highest overall score, get the contract.

The reasoning is simple enough, public procurement experts say. No one should want to build the cheapest bridge — they should want to build a reasonably priced bridge that won’t fall down.

On the surface, Montreal is like other major cities in Canada in how it awards contracts for professional services, like engineering and architecture, since each uses a points system in which a jury awards the contract to the bidder achieving the highest score.

But in reality, Montreal is quite different.

If you guessed the bid-evaluation system used here — and in all Quebec municipalities — is unique, you score 100 per cent.

And you get two gold stars if you guessed the formula used to calculate scores in Montreal and other Quebec municipalities leaves the cheapest and the least-qualified company winning the contract almost as often as not.

The Montreal Gazette analyzed 135 professional services contracts worth $140 million that were approved by Montreal’s city executive committee since January 2014.

Nearly half of the contracts with at least two bids went to the firm with the lowest or near-lowest quality score among qualifying bidders.

What’s more, almost nine out of 10 contracts were awarded to the firm with the lowest bid, regardless of how they ranked in terms of expertise.

In Montreal, and the rest of the Quebec municipal world, it appears to be a race for the bottom.

The quest for the cheapest contract carries a number of risks, experts warn.

It also raises questions about why Quebec requires a two-envelope system on municipal professional services contracts and requires a jury to score the quality of the bids and bidders in the first place when the lowest bid is the prevailing factor in determining who wins.

And price trumps quality because the formula municipalities are obligated to use under Quebec law to calculate the bidder’s final score was devised to do just that.

The formula, which appears to be unique to Quebec, was developed by the province’s Municipal Affairs Department in 1997. It became mandatory under the Cities and Towns Act in November 2002 — along with the two-envelope system — for professional services contracts and hasn’t been altered since, the Municipal Affairs Department says.

Under the system, a jury first opens a bidder’s technical response to the call for proposals, and only bidders that score a minimum 70 per cent on the technical criteria — the quality component — will then have their price envelopes opened.

From there, the formula in the Cities and Towns Act adds 50 to the bidder’s quality score, and the sum is multiplied by 10,000. The result is then divided by the bidder’s price to arrive at the bidder’s final score. Highest score wins.

Sound complicated? It is, an expert in bid-assessment formulas told the Montreal Gazette. It serves one end, the expert said: to favour the lowest price.

“The emphasis (in Montreal) seems to be on, ‘As long they’re technically acceptable, we’ll just go with the lowest bidder,’ ” said David Quinn, a computer scientist and procurement specialist based in Maryland. Quinn, who spent 19 years evaluating contract proposals and designing requests for proposals for the U.S. Department of Defence until 2002, analyzed the Quebec formula and the Montreal Gazette’s findings.

He said Quebec’s “good enough” formula reminds him of the adage people know the cost of everything and the value of nothing. Lowest price is a misnomer for better value, he said.

“It is a very short-term perspective that can be very harmful to getting quality work done for your tax dollars,” Quinn said, adding it creates a risk the work will need to be redone or may require higher maintenance costs.

“If you’re emphasizing ‘good enough,’ you may be having to reinvest again in a shorter time period.”

Quinn said he tested different values with the Quebec formula to assess its bias for price.

If, for example, you take bids of $70,000 and $75,000, where the lower of the two gets a bare passing grade of 70 per cent on quality, the higher bidder would have to score at least 80 per cent on quality to win the contract, he said.

So even though there’s a seven per cent price difference between their bids, the $75,000 bidder has to score at least 14-per-cent higher on quality to overcome the lower bid.

A company that lowballs its price can successfully trump the quality competition as long as it gets the minimum passing grade for technical criteria of 70 per cent, Quinn said.

And that weakness helps explain why only 40 of Montreal’s professional services contracts that had at least two bids, or one-third, went to firms that had the highest quality score, the Gazette’s analysis found. One other was tied for highest.

However, the winner for 31 of those 40 contracts was also the lowest bidder, often by a lot, so some likely would have won the contract without the top-quality score because of the formula’s bias.

By comparison, 36 contract winners had the lowest-quality score among qualifying bidders. Another seven had the second-lowest quality score out of several bidders, and three more were fourth or fifth out of seven bidders. Eight other winners were second out of three on quality. And three other winners were ranked in the middle on quality out of several bidders, such as third out of five bidders, or tied for third out of six bidders.

Four of the civil service reports did not mention a technical score.

If you’re emphasizing ‘good enough,’ you may be having to reinvest again in a shorter time period. — David Quinn, former Department of Defence procurement official

It’s a far cry from the bid-evaluation systems used in the rest of Canada.

The head of a Canadian association of engineering consulting firms says he’s not surprised by the Montreal Gazette’s findings.

“It’s quite heartbreaking to find out that (qualification) makes no difference in the procurement decision,” said John Gamble, president and CEO of the Association of Consulting Engineering Companies, an umbrella group for 12 provincial and territorial associations, including the Association des ingénieurs-conseils du Québec.

The bid-evaluation system at the municipal level in Quebec “purports to look at qualifications, the project team and so forth. Anecdotally, there’s been a sense that the low bidder is consistently winning. So essentially what it does is turn the procurement into just an expensive bidding process.”

On similar calls for proposals for professional services for the federal government or in cities like Toronto and Vancouver, price is only one of several criteria evaluated. The rest pertain to quality.

Price is typically worth 25 per cent of the total score in other cities, though it can vary somewhat by contract. So on a total score of, say, 100, the lowest bidder can get a maximum of 25 points for submitting the lowest price.

“The value 50 of the formula is intended to ensure that a qualified bidder (from the technical evaluation) who presents a price that is more than 25 per cent below his qualified competitors will prevail over all bidders having a higher quality score,” Municipal Affairs Department spokesperson Caroline St-Pierre wrote in an email response to the Montreal Gazette. The 10,000 figure is used to avoid having too many decimal places in the final score.

Why did the government design a formula to favour a substantially lower price?

“It’s quite simply the choice that was retained at the time,” St-Pierre said.

Meanwhile, Gamble’s association and its members are advocating for qualification-based selection — with no price bids. The client city or agency would negotiate price with the most qualified contender or contenders. Calgary uses this system for engineering and architecture contracts.

Engineering costs are one to five per cent of the total cost of a bridge, a building or other project over its life, so it doesn’t make sense to go for lowest bidder, said Keith Sashaw, president of the association’s British Columbia chapter.

“What that leads to is a scenario where people are beating each other up on price and they scrimp on quality in terms of they may not be able to bring the A-team into the conversation, they may not be able to develop full plans and specifications for the project, which would lead to constant change orders, frustration and delays in the project,” he said.

Some Quebec firms are, indeed, slashing their prices to win municipal contracts, one engineering company told the Montreal Gazette.

“Those who win mandates often will cut prices to get them,” said Isabelle Adjahi, vice-president of investor relations and corporate communications at WSP Canada, formerly known as Genivar.

“We always refused to cut prices to get mandates,” she said of her firm.

The city is aware firms are slashing their hourly engineering pay rates to bid lowest on municipal contracts.

“Past market experience demonstrates that engineering firms bid between five- and 10-per-cent lower than the maximum rates,” states a civil service report about the awarding of a two-year agreement to the firm Les Consultants S.M. Inc. to provide technical support to the city’s transportation department. The report was issued last May.

The rates bid in 2013 were an additional 10-per-cent lower than those bid in 2012, the report added. “This adjustment of the market could be explained in part by the magnitude of the agreements,” the report stated.

Consultants S.M. tied for last place on the technical score out of seven bidders for that contract. Yet its bid of nearly $1.8 million was 11.6 per cent below the next lowest bidder, and more than 28 per cent below the city’s estimate of $2.5 million. All of the bids were below the city’s estimate.

On an engineering and architecture contract for a mechanical workshop at Montreal’s Complexe environnemental St-Michel in July, the winning firm’s bid, $74,044, was 48 per cent below the city’s internal estimate for the work of $154,884 and one-third of the only other qualified bidder’s price of $236,815. What’s more, the civil service report noted in its recommendation to the executive committee that the winning bidder, Gémel Inc. and Simard architecture, “obtained the highest final score.” That was true; however, its quality score of 71.2 per cent was well below rival WSP Canada’s 80.3 per cent. A third unidentified bidder had failed to get 70 per cent.

The civil service report attributed the gap between the city’s estimate and the bidder’s price to two factors: a slowing of the market and the period the call for bids was held, which “may have encouraged the contractor to lower the price to guarantee a satisfying workload for the next season.”

The president of S.M. says the firm’s bids are based on a rigorous estimate of the cost to carry out the mandates Montreal puts to tender, based on the information in the contract specifications.

“Consultants S.M. is not in business to lose money,” Richard Breault, president and CEO of Le Groupe S.M. Inc., wrote in a response to the Montreal Gazette. “For every offer we submit and based on the information and requirements found in the terms of reference, we prepare a work plan to estimate, as precisely as possible, our fees. We are very strict in the hourly rates that we submit. However, we must consider the market, which is currently very aggressive in Montreal.”

Moreover, the company doesn’t scrimp on quality, he said, adding the firm exceeds the 70 per cent passing grade for quality.

Breault also said he’s not against introducing a qualification-based selection process in Quebec municipal contracts, with no price bidding component. “Each system has its strengths and weaknesses,” he said. “As a company, we have to abide with the requirements of contractors and meet the required criteria.”

The Gazette’s analysis found the winning bidder’s price was below the city’s internal estimate on two-thirds of the contracts, or 89 of 133 contracts, the civil service reports on the contracts show. (The city estimate was not mentioned in two reports.)

There’s a need for “price realism” in procurement, Quinn said.

If the city estimates the contract should cost $2 million and someone says they will do the work for $1 million, how does the city check to see if they really can do it for $1 million, he asked?

“The problem with lowballing is that the winner can have problems staffing at the rate quoted or the quality of staff at that rate is not what the city expected to get.”

Another risk with lowball winners is top-ups.

The city doesn’t report final costs on its contracts.

Related

City council’s contracts committee, which examines certain high-amount or anomaly contracts, has asked in its annual reports for the ability to follow up on contracts it has approved to track overruns.

Government agencies and companies struggle to determine when the higher quality technical proposal is worth the extra cost, Quinn said. The Montreal Gazette’s analysis seems to show “the formula the city of Montreal uses still seems to favour people wanting to ‘buy’ a contract by severely cutting the price.”

“So the mentality becomes ‘how much money can we save’ rather than ‘how do we get the best return on our investment?’ When the emphasis becomes on how much do we save versus did we spend our money wisely, that’s where the danger lies.”

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